Gold gains as Bundesbank repatriation move dissected

In the Lead: "BundesBull"

If you wish to have more proof about the fact that gold and U.S. equities are still (too) closely correlated (something that is anathema to gold bugs, historically speaking), then look no further than the S&P 500 reading of 1,481 recorded yesterday, or the Dow flirting with a five-year high. The S&P is only some 6% away from its all-time high? Check. Gold is only some 13% from its own record level? Double check. What might be wrong with that close tango dance? A lot. Anyway, back to the U.S. economic stats and how they bolster Mr. Geithner’s angle:

First: Despite all of the dire warnings about how we — by now, at the very latest — would be witnessing our (U.S.) dollar bills melting away in our very hands against a background of massive inflation, on the US reported that 2012’s CPI came in at 1.7% (that, against a 3% inflation level that was tallied in 2011). Go figure. Second: The latest U.S. initial jobless claims filings numbers (down by 37,000 to 335,000) are at their lowest level in five years. Third: The U.S. Commerce Department reported that U.S. housing starts leapt by over 12% last month, to their highest level in five years.

On the other hand, when it came to the economic growth level being envisioned on a global scale by the World Bank, well, the news was not all that positive. Gold prices suffered a midweek setback on the downwardly revised projections that the WB made for world economic growth for 2013. The institution is forecasting only a 0.8% expansion for Japan and a second year of contraction for the eurozone.

China’s and India’s growth expectations were also dialed back by the WB. Ditto those for Brazil and Mexico. Let’s just call those WB estimates for growth as “soft” overall. In rough numbers, that would translate to a global GDP increase of 2.4% this year; one-tenth better than 2012’s number, but well below previous WB calls for a 3% rate of expansion. That should make for some…soul-searching in Davos.

One more item of market interest this week was the rather “contradictory” tone coming from IMF Managing Director Christine Lagarde. You will recall that last week, ECB President Mario Draghi let it be known that interest rates would stay unchanged given certain observed trends in the EU. Well, Ms. Lagarde is of…another opinion (as of yesterday).

While the IMF chief’s remarks were apparently directed at all economic policy makers, it was hard to miss the obvious target and subtext in the words: “We stopped the collapse. We should avoid the relapse. It’s not time to relax.” As for the EU, Ms. Lagarde advised that “Clearly continued, if not further, monetary easing will be appropriate in order to sustain demand in the region.” Memo to Mr. Draghi: “Counting pre-hatched chickens = not advisable.”

And now, for something completely…the same: A fresh review of gold market fundamentals. Yes, they still matter. On Wednesday, Thomson Reuters’ GFMS statistical consultancy unit released an update to its 2012 Gold Survey. While some perennially bullish gold analysts proclaimed the GFMS findings as great news, it must be noted that there are certain “bottom line” items in the Survey update that should give cause for some concern.

Bottom line item #1: Global gold investment fell by 1.2% to 1,614 metric tonnes last year. In part, this retrenchment in gold investing was owed to a spike in the yellow metal’s volatility; such unanticipated price gyrations drove some investors away from the precious metal.

Bottom line item #2: A sizeable contributor to the drop in gold investment in 2012 was the sharp (19.7%) decline in physical gold bar offtake. A total of 961 tonnes of this type of gold was taken off the market by investors last year.

Bottom line item #3: A similar fall-off in demand was noted in the area of official gold coin fabrication. Growth in metallic as well as imitation coins was described as only “modest.” This type of ebbing in physical demand was probably attributable to a rising level of individual investor caution.

Investors turned skittish following not only a drop in the yellow metal to lows near $1,525 by mid-year but also as a result of subsequent lack of clear price direction and on the heels of a handful of episodes of heavy gold selling after the Fed repeatedly disappointed the bulls in the latter part of last year. You will recall that — in the projections of some newsletter scribes — 2012 was supposed to be the year during which gold would vault above its 2011 peak of $1,920 and surge to well over $2,000 an ounce.